Bernstein Research, the sell-side research arm of broker-dealer Sanford C. Bernstein & Co. and a unit of investment management firm AllanceBernstein LP, said the stock price for alternative asset managers–whose stock trades at an average of 11 times their earnings, compared with a 16 times multiple for their traditional asset management peers–don’t match their true value.

“At current stock prices, investors only pay for cash flows from existing funds,” and are essentially receiving economic benefit from private equity firms’ new ventures for free, a group of Bernstein analysts led by Luke Montgomery and Brad Hintz said in a research note.

The New York firm on Wednesday initiated coverage of the alternative asset management industry and of three large publicly-listed managers. Apollo, Blackstone and KKR were given “outperform” ratings, with predictions of a 30% to 50% upside in their share price.

The notion of listed alternative asset managers being undervalued isn’t new. Private equity and hedge fund firms are relatively recent channels for asset allocation among investors, particularly for public shareholders. In addition, the complicated way private equity firms calculate their earnings–expressed as economic net income or distributable earnings instead of the more straightforward net profits attributable to shareholders–may not help boost share prices.

The strong volume of portfolio sales by private equity firms in recent months on the back of receptive public and private markets and the resulting record returns in their short history as publicly listed entities have begun to convince investors of these firms’ potential.

Blackstone’s shares doubled in price last year, while Apollo’s rose by 82% and those of KKR by 60% during the period, according to Yahoo Finance.

“All the appreciation means is that the stocks were massively undervalued,” said Mr. Montgomery. “They are less massively undervalued, but still undervalued right now.”

Bernstein added publicly traded private equity firms are at the peak of their investment realization cycle. And while the momentum for selling portfolio companies may take a breather in 2016 or 2017, any pause will only be “short lived.”

“Investors stand to benefit from record realizations in 2018 and beyond,” it said.

Bernstein described alternative asset managers as “the best pure growth play in financial services” amid the challenges among other players in the field.

“Commercial banks sell commodity services with little scope for differentiation. Money center and capital market banks are hamstrung by higher capital charges and new regulations, causing them to de-emphasize or abandon once lucrative business,” the note said.

Mr. Montgomery said that apart from the share price valuation, shareholders shouldn’t forget the solid yield these stocks bring. He expects an 8.3% cash distribution yield, or the cash flow paid to shareholders, for Apollo this year, 5.6% for Blackstone and 7.1% for KKR, compared with 2% for companies listed on Standard & Poor’s 500 index.

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